Study: Offshore tax loopholes cost Mass. $1.7 billion

Massachusetts in 2011 missed out on nearly $1.7 billion from multinational corporations and wealthy individuals making use of offshore tax havens, according to a MassPIRG study released today.

STATE HOUSE NEWS SERVICE

BOSTON — Massachusetts in 2011 missed out on nearly $1.7 billion from multinational corporations and wealthy individuals making use of offshore tax havens, according to a MassPIRG study released today.

The $1.68 billion kept out of state coffers in 2011 puts the Bay State behind only six other states in the amount of potential tax revenue kept in offshore havens, according to the study, placing it behind Minnesota, Pennsylvania, Illinois, New Jersey, New York and California, the "golden state" where an estimated $7.14 billion in potential tax revenue was protected in offshore accounts in 2011.

"While large multinational corporations such as Apple, ExxonMobil or Goldman Sachs routinely make national headlines for the billions of dollars in federal taxes they avoid annually by parking profits offshore, the impact of missing federal tax revenues on state budgets has received virtually no attention," read the study.

The paper was written jointly by the U.S. PIRG Education Fund and the Frontier Group, and it was reviewed by Institute on Taxation and Economic Policy. In the methodology section, the researchers note that they may be "overstating" the amount that could be gained by bringing incomes under the jurisdiction of state tax authorities because "if individuals and corporations had to pay taxes on funds currently offshore, they might seek other tax avoidance strategies, thereby reducing the revenue generated."

The $1.68 billion figure approaches the $1.9 billion Gov. Deval Patrick is seeking to raise for transportation and education. Among myriad methods Patrick has proposed to raise revenue, the bulk of the new tax dollars would come from elimination of 44 personal income tax exemptions and deductions.

The 50 states missed out on an estimate of $39.8 billion in 2011 because of individuals and corporations keeping their money in countries with minimal or no taxes, according to "The Hidden Cost of Offshore Tax Havens" study. Offshore tax havens account for approximately $150 billion in foregone federal tax revenue every year, according to the study.

"These companies and individuals benefit from the taxes paid by other corporations and citizens," the study said, echoing claims made by Democrats about tax policy fairness issues. "The profits they shelter overseas are generally earned from America's largest-in-the-world consumer market; produced by America's well-educated workforce, which was trained in our extensive public school system; sustained by our road and rail systems that help transport goods to market; and protected by America's strong private property rights as enforced by America's court and probate system."

The study suggests states close several "loopholes" to get ahold of more tax dollars, including decoupling from the federal tax code that allows certain incomes to go unreported, treating the parent and subsidiary companies of a corporation as one reporting entity for tax purposes, and withholding taxes on certain companies that do not comply with U.S. reporting requirements.

The study also suggests more disclosure requirements and for states to urge their Congressional delegations to oppose a "territorial" tax system that would allow companies that shift profits overseas to bring that money into the U.S. without paying taxes on it.

Massachusetts collected $13.52 billion in corporate and personal income taxes in fiscal 2011, according to a study by the National Governors Association and the National Association of State Budge Officers. The $1.68 billion is about 12 percent of the amount collected in 2011.